Recasting the debate on Africa's innovation

Demystifying Africa’s growth and numbers

Talking about Africa has always been a somewhat challenging endeavour. This is due to the fundamental absence of a comprehensive understanding of the history, lives and future of African countries, which has given way to sketchy generalisations since the colonial era. In recent years, it looks like the world has begun witnessing a change in the rhetoric used to address the continent, mainly driven by a narrative that builds on increasing cash flows to the region and stellar growth rates. Yet, the enthusiasm orbiting today around the idea of Africa often results in a misleading effort that perpetuates yet another fabricated myth and a ready-made perception.

The result? A gross simplification of the dynamics underpinning socio-economic change across the continent.

Surely, the increased interest in the region has produced a proliferation of Africa-focussed resources and the year 2018 has opened with a series of positive updates about the state of business climate and innovative scene. Dedicated magazines showcasing the innovative revolution multiplied and so did the volume of country reports by major consulting firms. These resources range from indicators on growth to updates on the several sector niches. Yet, not all that glitters is gold and we need to break these debates down.

Economic growth, start ups, and the rise of entrepreneurship.

The once ‘hopeless continent’ is now purportedly the discovery frontier for investors, who begin to acknowledge the increasing potential of its ‘young’ population and its greater purchasing power – a combination set to position Africa as the next largest single consumer market. Besides the rising income levels, the ICT revolution has now begun bearing fruit by allowing the ‘youth to become better informed, to engage more in civil and political discourse, and to demand more accountability from leaders’, thus laying the foundations for a better business climate and enhanced human capital. Entrepreneurship has started to be seen as a major driver of the economy but the segment the media seem to be focusing on is a particular niche – i.e start ups and tech entrepreneurs.

What about the millions of informal workers and the rest of the MSMEs populating the continent? 

“The support framework for start-ups grew by 50%.”

The GSMA, global representative of the mobile industry, recently relaunched its  Tech Hubs Landscape – a map showing the framework supporting start ups and entrepreneurs across Africa and Asia Pacific. The research focuses on ‘incubators, accelerators, co-working spaces, fab labs, makerspaces, hackerspaces, and other innovation centres’, which represent the infrastructure supporting the embryonic startup ecosystems across the continent. According to the study, Africa counts today with over 442 such hubs, that is, a net increase by over 50% in less than two years. South Africa, Nigeria, Kenya, and Egypt show the largest tech ecosystems. The countries also represent – with the exception of Kenya, which lags behind North African players – the largest economies in the continent. GSMA points out the emergence of so called ‘tier-II’ ecosystems, i.e. countries that a couple of years ago only presented an incipient activity in the innovative space - such as Ivory Coast, Zimbabwe and, to a lesser extent, Ghana, Uganda, DRC and Zambia.

What is the rationale behind the existence of such hubs? The opinion mainly splits between those who consider hubs catalysts of innovation, capital, and talents, and those insisting upon the flaws of such ecosystems. The former category sees them as facilitators for international investment and capacity builders. According to them, in countries where the business infrastructure is often inadequate, these hubs represent a point of reference for local and international innovators. Conversely, the critics focus on the scarcity of observable results – e.g. how many successful start-ups were ‘born’ in these organisations, what ground-breaking innovation they actually offer, etc. – but also address the moral integrity of such institutions, as it would seem that a large share of ventures supported by these hubs remains dominated by western founders. Finally, a third dimension, which adopts a more holistic approach to the analysis these hubs, begins to emerge. Among these is a pioneering PhD thesis by Nicolas Friederici of the Oxford Internet Institute, which attempts a more comprehensive contextualisation of their presence and role within the community.

However, the lack of complete datasets boils down to the relatively recent entrance of the start-up scene into the mainstream, which makes it hard to carry out a systematic assessment of the role tech hubs play in their ecosystem and, in particular, in their society..

Although the GSMA’s study per se sound like a niche piece of research, its results are in line with a broader set of data and highlight well-verified trends:

1. Technology is the next big thing in Africa;

2. A small number of cities gather the majority of wealth in the region;

3. A few new fast-growing players are beginning to stand out.  

Partech Ventures, a San Francisco based venture capital fund and Disrupt Africa, a prominent webzine on African innovation, recently released their respective Start-up Funding Reports – according to which the golden triad made of SA, Nigeria, and Kenya attracts the largest amount of capital, followed by Ghana, Egypt, and Morocco. According to Partech, $560 million entered the continent in 2017. $195 million is instead the calculation by Disrupt Africa. Despite the gap in the final results due to differences in their methods (Partech allegedly included African companies founded outside Africa and Initial Coin Offerings), the studies reveal similar patterns. As said, besides the three usual suspects, the race between the new ‘African’ fast-rising stars has been recently dominated by four countries: Ghana and Côte d’Ivoire in West Africa, Morocco in North Africa, and Ethiopia in East Africa. According to multiple sources, 2018’s trophy for the fastest-GDP growth rates goes to Ghana, which is projected to grow by over 8.2%.

Re-contextualising numbers – what does growth mean? 

When coming across new quantitative data, there are two elements one should consider: 1) having a valid benchmark to be able to put things in perspective; and 2) knowing what the playing field is.

Take the $560 million of total funding revealed by Partech.

It surely sounds like a significant figure if taken outside its context. And it is so. Yet, once compared to the $155 billion global VC funding of 2017, all those millions lose their appeal. For instance, Singapore alone, with a population of about five million people, attracted a dozen times more venture capital than Nigeria, which is renowned for its 190+ million people market, and ca. 2.5 times more than Africa as a whole. Likewise, the barriers to entrepreneurs are slowly being reduced, causing the business climate to improve and, consequently, attracting more investors. But this is simply a piece of an intricate puzzle and many more resources are needed for tangible change to be seen.

In this regard, a recent study by Dalberg shows that, in order to achieve the Sustainable Development Goals – the 2015 development agenda agreed upon by the international community – there will be a need to fill a $2+ trillion funding gap per annum until 2030 – an endeavour that is expected to be taken up by private and institutional investors. This may perhaps have little or nothing to do with the more niche debate around startup funding and the SDG agenda - and, more broadly, the entire world of international development - is surely no short of criticism pointing at its questionable methodology and boundaries. However, it is essential to understand what kind of numbers these agendas deal with and how wide the gap size dividing the realms of socio-economic development and startup ecosystem is.

Now, if these numbers need not be looked at without a careful assessment of their specific context, neither should GDP growth rates nor any other gross macroeconomic indicators. There’s a need for less ‘how fast’ and more ‘why’. Growth can be due to a countless number of factors that are often neither inclusive nor pro-poor. The very idea of 'Africa rising' has been questioned widely, not only in relation to what this growth implies but in particular to what the drivers and whom the beneficiaries of such growth are. I am not going to delve into the several instances where growth has been subjective or confined to a very limited portion of the population but I will challenge the way such numbers are approached and thought of.

Economic growth can have many facets, ranging from higher commodity prices to convergence theory. It is important, before starting to count, to understand the substance underpinning such numbers.

Here come the ICT giants: Entrepreneurial hype vs tangible human capital development

Most of the narrative on Africa today revolves around the role of innovation and technology in ‘disrupting’ obsolete apparatuses, fostering entrepreneurship, and helping the continent leapfrog and skip unnecessary steps to ‘modernisation’. Among the hot topics populating Africa-focussed media today is the growing interest tech/telco giants shown in accelerating African development by providing the infrastructure, boosting human capital, and, recently, taking part in the startup galore. From Facebook’s dream of a free internet, to Sundar Pichai’s promise to train ten million Africans in digital skills, on through Jack Ma’s announcement of a $10 million African Young Entrepreneurs Fund, most major technology companies have tried to carve out a role in the African ICT revolution.

However, the excitement about the several Zuckerbergs making their way to the continent and the foreseeable opportunities for young Africans has often masked an endemic and persistent problem across the continent, that is, the sky-high rate of undereducated people. A recent publication by the Brookings Institute highlights that, despite the remarkable growth, Sub-saharan Africa still maintains the lowest tertiary gross enrolment ratio globally, which implies that the new generations will likely fail to absorb the growing market demand for high-skilled professionals.

In this regard – although not exclusive to Africa – a growing consensus has been found around the correlation between privilege (especially, that of being a white male from a well-off family) and entrepreneurship. It is becoming increasingly clear that, despite the rise of business support frameworks, entrepreneurship is not a game for everyone. As someone once rightfully pointed out, ‘every mama or papa in Africa is an entrepreneur’ and The Economist observes that in Africa, people are more likely to be self-employed than vice versa. Yet, the recent hype around techpreneurs, startups, and the digital revolution seem to have drawn a line between entrepreneurs and Entrepreneurs. The former class represents the vast majority of people engaged in some form of business whilst the latter belongs to a niche category of privileged, high-skilled individuals that make it to university – when they don’t receive their education in the US and Europe. Take Nigeria for instance, where only a few years ago the enrolment rate in tertiary education was about 10% and where the top students prefer being educated in the West.

There is surely a reason to be optimistic about the future. Innovation, increased capital, and a large young population represent a sound equation for success. However, the focus must remain on levelling the playing field, unlocking opportunities, making education more accessible and growth more inclusive. The demographic dividend bears a gargantuan duty as one billion young men will not be of much use in a world that needs for highly skilled professionals. This way, although 6 out of the 10 fastest-growing economies in 2018 will be African, the outcome may not be as glowing as expected. The quality and mainly the sustainability of such growth need to be made a priority, starting from containing a soaring public debt, to improving the education system, and limiting the dependence on commodities’ exports.

Federica Mogherini, the High Representative of the EU, once referred to the continent as ‘a land of immense energy and opportunities’. Let’s make sure this energy is unleashed and the opportunities are not only seized by the advantaged minority.

April 16th, Dario Giuliani, Founder & Chief Editor